Does Geopolitical Risk Induce Comparative Advantage in Low‐Carbon Energy Trade? Insights on Climate Policy and Innovation Business Strategies

ABSTRACT Given the significant surge in greenhouse gas emissions over the past several decades, the demand for low‐carbon energy products has increased globally. However, geopolitical risks and tensions have also been escalating, which can reshape the trade of low‐carbon energy products. Despite growing work on geopolitical risk and energy transition, no study has yet examined how geopolitical tensions reshape countries' revealed comparative advantage in low‐carbon energy trade. This study therefore aims to fill this research gap by providing an understanding of how geopolitical risk affects comparative advantage in low‐carbon energy trade across 27 countries worldwide. Taking the data period from 2000 to 2021, the study implements several panel regression models to account for endogeneity as well as cross‐country heterogeneity. The results reveal that geopolitical risk undermines a country's comparative advantage in international trade of low‐carbon energy products, regardless of the model specification. Domestically adopted low‐carbon energy innovation suggests a positive outcome for enhancing comparative advantage in this category, while low‐carbon energy policy has no significant impact. These results imply that governments and firms aiming to build durable comparative advantage in low‐carbon energy trade should complement innovation‐support policies with strategies that reduce exposure to geopolitical disruptions in green value chains.